Dollar rallies on capex numbers

The Australian dollar broadly rallied today as figures on future business investment in the country proved stronger than some had anticipated and cooled interest rate cut expectations.

The dollar gained one cent to $US1.0274, recovering from an overnight slide which had sent the currency to its lowest since October.

The bounce came after estimates of business spending plans for 2012-13 and 2013-14 were generally above what many had feared, suggesting investment would remain healthy for some time to come.

The result offset fears that investment would tail off sharply in 2013-14 once the long boom in mining spending had finally peaked.

"As mining still has further to run, the Reserve Bank of Australia (RBA) has time to see its already loose policy work through the economy," said Paul Bloxham, Australia's chief economist at HSBC, adding the central bank is done with its easing cycle.

Swap market pricing now implies less than a one-in-five chance of a quarter point easing to a record low of 2.75 pct when the RBA holds its monthly policy meeting next week.

Advertisement

It was 31 per cent before the data and markets are still fully priced for a cut by June.

Also helping the Aussie dollar was talk of large bids perhaps related to coming dividend payments by major miners.

Immediate resistance was found at $US1.0210, the 20-day MA with sellers cited ahead of $US1.0300.

The dollar made sharp gains against the yen, reaching 95.10 yen at one stage, closing in on a fresh four-year peak of 97.52 hit on Monday.

The dollar has gained three yen in one session, but was still down 1.6 per cent so far this week, its biggest such loss since June. Immediate resistance was found at 95.24, the 50 per cent retracement of this week's move.

As expected, Japan's prime minister nominated, Asian Development Bank Haruhiko Kuroda as Bank of Japan's governor and Kikuo Iwata, an academic, as one of the two deputy governors.

The dollar has gained more than 14 per cent since November on speculation the Bank of Japan will take aggressive steps to combat reflation and as a result, will likely weaken the yen.

Australian government bonds pulled back from one-month highs, with the three-year contract 0.050 points lower at 97.250, having climbed to 97.330. The next big level is January's double top around 97.340.

The 10-year contract eased 0.02 points to 96.670 from a peak of 96.730. Key resistance was seen at 96.771, the 38.2 pct of the June-Feb slide.